You have been asked to prepare a December cash budget for AshtonCompany, a distributor of exercise equipment. The followinginformation is available about the company’s operations:
The cash balance on December 1 is $45,000.
Actual sales for October and November and expected sales forDecember are as follows:
| October | November | December |
| Cash sales | $ | 80,800 | $ | 74,000 | $ | 98,200 |
| Sales on account | $ | 525,000 | $ | 559,000 | $ | 643,000 |
|
Sales on account are collected over a three-month period asfollows: 20% collected in the month of sale, 60% collected in themonth following sale, and 18% collected in the second monthfollowing sale. The remaining 2% is uncollectible.
Purchases of inventory will total $371,000 for December. Thirtypercent of a month’s inventory purchases are paid during the monthof purchase. The accounts payable remaining from November’sinventory purchases total $201,500, all of which will be paid inDecember.
Selling and administrative expenses are budgeted at $506,000 forDecember. Of this amount, $89,100 is for depreciation.
A new web server for the Marketing Department costing $95,000will be purchased for cash during December, and dividends totaling$13,500 will be paid during the month.
The company maintains a minimum cash balance of $20,000. An openline of credit is available from the company’s bank to increase itscash balance as needed.
Required:
1. Calculate the expected cash collections for December.
2. Calculate the expected cash disbursements for merchandisepurchases for December.
3. Prepare a cash budget for December. Indicate in the financingsection any borrowing that will be needed during the month. Assumethat any interest will not be paid until the following month.
